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Have you been misinformed on Mortgage Penalties?

There seems to be a lot of misinformation out there on mortgage penalties these days. With the government just beginning to attempt to level the playing field a bit, and media touching on the subject rather often, I think it's important we continue to talk about the subject.

Yesterday I had a client call me about a conversation they had with their bank.. To give you a bit of background on the situation, the client currently has a mortgage with one of the 'Big 6' banks. Their mortgage is approaching maturity and they're looking at their options for the end of their term. They'd discussed options with me previously, and as I do with all my clients, I'd discussed pros and cons for going with banks, credit unions, mono-line lenders. One of the topics I discuss is is mortgage penalties. I had explained to the client that lenders who have 'posted rates' typically have higher penalties when breaking your mortgage before the end of your term, than lenders who don't use posted rates.

When my client told her bank representative that she wouldn't be interested in a fixed rate mortgage with them because of how they calculate their mortgage penalties on fixed rate mortgages, the representative replied, "Mortgage penalties are calculated the same no matter where you go, it's a government issued calculation."

Now, I don't know if this is a case of a lender saying whatever they need to to retain their client, or the unfortunate situation that happens all to often, where a bank representative knows only their own products and comments when they shouldn't on other lender's policy's that they know nothing about. The frustrating part of this is that there seems to be no consequence to lender representatives making false statements like this.

If the mortgage representative at your bank tells you that mortgage penalties are the same no matter where you go, and that it's a government issued calculation, chances are, you're going to believe and take their word on it. We tend to trust our banks, and the people who work there. Not to say we shouldn't, but this is a case of a client who, if they wouldn't have spoken with me, would have just believed their bank that all lenders calculate their penalties the same. As this is completely false, it's very misleading and unethical, to tell this to a client, whether by accident or not.

Don't get me wrong, it's not just bank reps out there misspeaking and giving people false information, brokers definitely do it too, but there are certainly more consequences for a broker misspeaking than a bank rep. What it comes down to, is that people just shouldn't comment on topics they haven't been trained on. As it could have in this case, these type of misrepresentations can be very costly to a borrower.

For those of you who aren't familiar with mortgage penalties and how they're calculated, please see:
http://portalbernimortgage.com/blog_article.php?pid=676
and
http://portalbernimortgage.com/blog_article.php?pid=862
and
http://portalbernimortgage.com/blog_article.php?pid=613

To learn more on the subject. Mortgage penalties are not standardized in Canada. So long as the lender declares to you in their standard mortgage terms, that you sign when you get your mortgage, how they will calculate the penalty, they are allowed to set their calculation how ever they want. Penalties can vary GREATLY from lender to lender. The Federal Government has recently introduced a new policy requiring lenders to show a mortgage penalty calculator on their website, to allow borrowers to see what their penalty would be, and compare with other lenders, before signing onto a mortgage.

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I'm looking forward to connecting. Due to being in and out of meetings both for council and business, email is typically the best way to get in touch with me. If you prefer to call, that's fine as well, it just may take me slightly longer to get back to you. Texting is also welcomed.